Oct. 4, 2010 – Improving P&A profitability by scrutinizing inventory

These articles recap some of the opportunities uncovered by our GSA powersports consultants during actual on-site dealer engagements. These are followed by recommended actions to address these opportunities. Our goal is to provide you with ideas to help improve your dealership.
The first part of this series was an analysis of the dealership. This second and third parts delved into the sales and F&I?departments. This fourth part looks at the P&A department.

DEALERSHIP

This dealership sold more than 500 units last year — at a loss. Their market area (30-mile radius) has a population of more than 250,000. The store has been in business for more than 30 years and has carried a number of brands under various owners. There has been a recent buy-out, resulting in an absentee owner with multiple dealerships. The facility is comprised of several, loosely connected older buildings that have been remodeled numerous times. They are planning to move to a newer facility with freeway exposure as soon as possible.

P&A DEPARTMENT

Although they have a person in charge of this department, he is not performing most of the management duties. However, he is a powersports enthusiast with many years of experience in powersports and automotive dealerships. A corporate, multi-store parts director does most of the P&A purchasing and parts management functions remotely.
They have a made a huge effort to improve this area since they took over the store. They have cleared out a lot of obsolete inventory. Currently, they still have 18 percent of obsolete P&A stock. We like to see this kept below 10 percent. They also have added a lot of accessories and displays. These are well-displayed, considering the facility they have. They need to partner with sales on creating some lifestyle and theme displays with units and P&A.
They have geographical bin locations for most of the hard parts, as well as the clothing and accessories. There was a discussion of the advantages of using categorical bins for clothing and accessories, since they change positions frequently. The bins have not been sized to be counted in an hour or less. This will make cycle counting a bit difficult initially, as some bins will have to be resized to accommodate the procedure.
Few parts are being stocked by size or movement. This should be incorporated in the evolution of the department layout. They have not initiated random cycle-counting (one bin per day, every day). They were encouraged to do so immediately.
A bigger issue is the lack of proper categorizing in the computer. They need to address this quickly and get everything set up properly so it can be measured and tracked. Once completed, they can look at parts, clothing and accessories performance and profitability. This can then become the basis for an open-to-buy budgeting system.
None of the standard reports were being run. Store management should be pulling the inventory valuation, number of turns, lost sales, slow movers (six months with no sale) and obsolescence (no sale for 12 months) reports on a monthly basis.
They need to develop and implement a parts-to-service process. Service must become a top priority. This applies to filling orders as well as notifying of order status.
Too many people have access to changing part quantities. This is an invitation to increased shrinkage. Ideally, only the department manager and GM should have this capability. P&A items should be treated as boxes filled with dollar bills.

ACTION ITEMS

Sell P&A at retail to sales and service so you can measure the real profitability of this department.

Restrict the ability to change parts quantities to a minimum number of people.

Properly categorize the parts, accessories and clothing in ADP?Lightspeed so these categories can be measured against industry benchmarks.

Monitor gross profit on P&A. Strive for 35 percent in parts and 32 percent in accessories/clothing.

Begin random cycle counting of all P&A. Count at least one bin every day. As you implement this, resize bins where necessary to be counted in one hour or less. The goal is to count the entire inventory four-six times a year, improve inventory accuracy and reduce shrinkage.

Develop a written process to improve parts-to-service. Consider using the shipping/receiving person as the liaison. Make service parts a top priority.

Monitor inventory value, number of turns, lost sales, slow movers and non-movers on a regular basis.

Move fast-moving parts closer to the counter to improve efficiency.

Develop theme displays of P&A related to specific units. PSBGart Sutton has been a leading provider of on-site dealer consulting, dealer 20-groups, online financial composites, accounting rescue services, and OEM and dealership training solutions for nearly 30 years. For additional information on these services, visit www.gartsutton.com

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